Gujarat H.C : No addition could be made only on basis of agreements to sell found in search, which were not at all implemented

High Court Of Gujarat

CIT VS. Fairdeal Textile Park (P.) Ltd.

Section : 69B

Akil Kureshi And Ms. Sonia Gokani, Jj.

Tax Appeal Nos. 1051, 1052 & 1057 Of 2013

February 11, 2014


Ms. Sonia Gokani, J. – Revenue has challenged the order of the Income Tax Appellate Tribunal (“the Tribunal” for short) dated 3.5.2013 raising following questions for our consideration:—

“(A) Whether the Appellate Tribunal has substantially erred in deleting the addition which was made by the Assessing Officer on the basis of seized documents admitted to be correct by the assessee’s directors in their statement under section 132(4), merely on the basis of statement of the broker and no other corroborating evidences?

(B) Whether the Appellate Tribunal has substantially erred in ignoring documentary evidences (i.e. satakhat) in which, the assessee himself admits of the fair market value of the land, as sufficient proof of prevailing market rate of the land of the area?”

2. We have heard learned counsel Ms. Mauna Bhatt for the revenue. She has strenuously argued before us that serious error has been committed by the Tribunal in not accepting the price of land at Rs.2.80 lakhs per bigha. Despite there being two agreements concerning the land in question, found during the search proceedings under section 132 of the Income Tax Act (“the Act” for short), she attempted to point out that huge on-money transaction in the purchase of the land becomes apparent from the record, and therefore, perversity in the findings of the Tribunal requires interference.

3. Upon hearing learned counsel and on close examination of the material, all appeals since raise identical question of facts and law as also concerned respondent assessees are of the same group, they are being decided by this common order.

4. Brief facts necessary for the purpose of deciding these appeals are as follows:—

5. Revenue had carried out search action under section 132 of the Act at the business and residential premises of Shahlon Group on 28.1.2010. During the search proceedings at the residential premises of Dhirajlal Raichand Shah, two agreements (Satakhat) were found and seized. What culled out from these two agreements was that one Shri Natvarsingh Nathusingh Admar was given cash of Rs.50,000/- and Rs.40,000/- by Shri Dhirajlal Raichand Shah and Shri Nitin Raichand Shah respectively for the purpose of purchase of land at Mahuvej, Mangrol, Surat. The rate reflected of the said land was Rs.2.80 lakhs per bigha (2327 square meters). The land was being purchased for developing Fairdeal Textile Park Pvt. Ltd. under the SITP scheme of the Government of India. Total area for the said project was 92.29 bighas.

6. The Assessing Officer recorded the statements wherein the Director of the said Group had admitted to the cash payment to the transferor and accordingly summons was issued to Shri Natvarsingh Nathusingh Admar. On the basis of the statement of Shri Natvarsingh and on the basis of these documents, the Assessing Officer considered the sum of Rs.42,40,636/- as unexplained income and the same was added to the taxable income of the assessee.

7. When such addition was challenged before CIT(Appeals), it also concurred with the findings of Assessing Officer by holding that the entire evidence was to show that Satakhat or the agreement to sell proved the market rate of the land at Rs.2.80 per bighas, and therefore the Assessing Officer was justified in making the addition under section 69B of the Act.

8. When the assessee further challenged the same before the Tribunal, it quashed and set aside the order of the Assessing Officer and that of CIT(Appeals) and held the entire addition to have been made on the basis of presumptions and surmises by holding thus:—

“14. From the above facts, it is apparent that the revenue had made addition only on the basis of surmises and conjunctions that the assessee would have paid Rs.2,80,000/- per bigha. The onus thrusts upon the revenue to prove its stand is not met. As pointed out by the assessee, the decision rendered in K.P. Varghese v. ITO 131 ITR 597(SC) comes to its rescue. There is no evidence to show that the assessee had paid on-money for purchase of the land. The entire addition was made only based on the inference drawn from the two agreements found during the search which were claimed to be cancelled by the executors of the same. There was nothing on record to show that the agreements were acted upon as per the terms stipulated therein. There was no trace of cash payment in excess of the amount shown in the registered documents either with the assessee or with the owners of the land who had sold the land to the assessees. Further, the landowners were not examined or investigation made on them to verify whether they had received on-money for the sale of their land to the assessee. Moreover, the learned AO had not conducted any enquiry to find out the market value of the land or had referred the matter to the DVO to determine the market value of the land. On examining the entire facts of the case, it is quite apparent that the revenue had made the additions only on the strength of the two agreements obtained at the time of search. It is pertinent to note the decision of the case CIT v. Naresh Khattar HUF reported in 261 ITR 664 (Del.) wherein it was held that inference has to be drawn on the totality of the circumstance and not on any single fact while making addition u/s. 69B of the Act. From the facts and circumstances of this case and as per our above discussions, we are of the view that the aggregate addition made for Rs.2,09,72,810/- in the hands of all the above mentioned assessees based on assumptions and presumptions by the learned AO which was further sustained by the learned CIT(A) does not have any merit and deserve to be deleted. Accordingly, we hereby delete the additions made by the revenue against all the above mentioned assessees aggregating to Rs.2,09,72,810/-.”

9. Resultantly, present appeals raising aforementioned questions of law before us.

10. We could notice from the entire material that both the Assessing Officer and the CIT(A) were convinced that both the agreements executed between the company and Shri Natwarsingh since had reflected clearly the rate of the land at Rs.2.80 lakhs per bighas. Subsequent registered sale deed effected in the name of the company at the rate of Rs.70,000/- to Rs.80,000/- per bighas was much lower in rate, and therefore, only inevitable conclusion was the exchange of on-money in the entire deal. It can be noted from the detailed discussion of both the authorities that except these agreements, there was no other evidence on the record. Admittedly, the land had been originally agreed to be purchased through middleman. The statement given by Shri Natwarsingh is eloquently making it clear that such agreement had not been acted upon. In his statement in an answer to the question raised by the authority, he had admitted that he had expected the purchase price to Rs.70,000/- to Rs.80,000/- per bigha, when he entered into the agreement to sell with the respondent assessee. He also had expected to purchase the land he agreed to sell from other agriculturists. Being sure of striking such deals at the rate he had contemplated, he had entered into an agreement to sell for selling the land at Rs.2.80 lakhs per bigha to the company expecting huge profit in the process. However, when some of the owners denied to sell him the land at the price that he expected, the amount of Rs.90,000/- that was received by him from the company by way of token towards sale consideration was asked to be returned. He had been emphatic that such deal did not get through and therefore the amount had been returned to the company. It could be thus noticed from the statement recorded of the Director and others that the middleman had ensured the company to get the land at the rate of Rs.2.80 lakhs per bigha. However, on realizing that he needed to surreptitiously pocket the huge amount of money in the said deal, the purchase was made directly from the owners by the company, and therefore, the price at which it purchased in fact had come on the record. The Tribunal, therefore, rightly noted the essential fact that purchase of land was directly from the farmers. In absence of any other evidence of on-money payment, as also in absence of any suggestion of the market value of the land purchased by the respondents being far more than what had been reflected in the sale deed, the Tribunal did not endorse the views of both the Assessing Officer and that of CIT(Appeals). Another aspect that had weighed with the Tribunal was the fact that the registered documents had been executed at ‘Jantri’ value. There was no reference to the Valuation Officer to point out that the value of the land was below the market price.

11. Predominantly, the issue is based on factual matrix presented before the authorities. Cumulatively, all circumstances and the facts that had emerged on the record led the Tribunal to the decision which is impugned in the present appeal which according to us suffers from no perversity.

12. No question of law much less any substantial question of law arises. All Tax Appeals are, therefore, dismissed.

[Citation : 362 ITR 497]